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Wednesday, 19 August 20
MARKET INSIGHT - GEORGE LAIOS | INTERMODAL
 Since the Covid-19 outbreak, governments and central banks around the globe have been using their ammunition and stimulus packages to keep their economies running. Trillions have been injected into global economies to fight unemployment and minimize recession. Apart from the central banks of EU, Japan, Switzerland, Sweden and Denmark, who have been offering negative rates for the past five years – a handful of central banks have now reduced their policy rates to near-zero values. Regardless of how successful or not the above mentioned five banks’ “experiment’’ has been, negative rates have undoubtedly made hedging strategies more complicated.
When it comes to the US Dollar, the Fed Chair has made it clear that negative rates are not part of its policy tools for the time being and that it is highly unlikely that rates will be pushed below zero. However, the US President has openly expressed that he views such a tool favourably. Although market experts do not expect negative Libor rates in the imminent future, no one can rule out the possibility of this happening.
These developments have had numerous effects on shipping companies who typically borrow using USD-Libor floating loans. The first and obvious outcome of lower Libor is the reduced borrowing cost. Whilst average 3-month LIBOR rates were 0.69%, 0.74% and 0.95% during the 2009, 2016 and 2020 (to date) recessions respectively, the 3-month LIBOR rate in July closed at 0.3% and has decreased approximately 6-fold since January (0.25%, as of 17/8). USD Libor loans have a zero lower bound limit which is incorporated by banks in their loan documentation (LMA) language: if Libor is less than zero “it will be deemed to be zero’’. This wording is also included in proposed documentation by the Alternative Reference Rates Committee, who is responsible for the development of Libor’s successor.
Low interest rates have also resulted in increased enquiries from bank clients who want to exploit their interest rate hedging options. Most shipping borrowers have decided not to hedge owing to the consensus that USD interest rates will not increase significantly over the next couple of years. Nevertheless, the number of shipping companies (mainly listed) that have engaged in hedging derivatives remain significant.
Under “normal” circumstances, a Cap or a SWAP for protection against an upward movement of interest rates would be the norm. However, nowadays it is essential to provision for negative interest rates. The borrower who hedges should bear in mind that USD Libor can also turn negative. Some banks even “encourage” clients to include a Floor in their SWAPS which will prevent base rates on their loans from dropping below zero. This limits the extent to which their derivatives can fall “out of the money”. Such protection comes at a premium. Indicatively, a 5 year SWAP is priced at 0.37 %, while the cost of a Floor is [10-30] bps. With rates expected to remain close to zero, the SWAP protection premium will continue to rise for as long as there are statements in favour of negative rates such as that of President Trump. However, whether the cost of protecting of a company’s future cash flows through the xyz premium is high or not is also a matter of perception and is reflective of one’s risk profile.
By George Laios
Deputy CEO, Intermodal Group
Compiled by:
Intermodal Research & Valuations
Analysts:
Ms Eva Tzima
Mr.George Panagopoulos
Disclaimer and legal disclosure: For any further queries please do not hesitate to contact our Research & Valuations Department. The information contained in this report has been obtained from various sources, as reported in the market. Intermodal Shipbrokers Co. believes such information to be factual and reliable without making guarantees regarding its accuracy or completeness. Whilst every care has been taken in the production of the above review, no liability can be accepted for any loss or damage incurred in any way whatsoever by any person who may seek to rely on the information and views contained in this material. This report is being produced for the internal use of the intended recipients only and no reproducing is allowed, without the prior written authorization of Intermodal Shipbrokers Co.
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Wednesday, 25 November 20
DRY BULK SHIPPING: CHINA REMAINS THE DRIVING FACTOR, BUT COAL POLICY IS DISRUPTING THE MARKET - PETER SAND, BIMCO
The second half of the year has provided some cheer for the dry bulk market, with all ships in the spot market averaging earnings above the break-e ...
Wednesday, 25 November 20
CHINA KICKS AN OWN GOAL WITH AUSTRALIAN COAL - FORBES
China’s annoyance at Australia’s hardline stance on political interference and demands for an independent inquiry into the root cause o ...
Wednesday, 25 November 20
MINISTER - INDONESIA JAN-OCT COAL OUTPUT AT 459 MILLION TONNES - REUTERS
Indonesia coal output in the January to October period was 459 million tonnes, the country’s energy minister told parliament on Monday.
& ...
Wednesday, 25 November 20
INDIA: MORE STEPS NEEDED TO MAKE COMMERCIAL COAL MINING ATTRACTIVE TO GLOBAL PLAYERS - LIVEMINT
India concluded its first commercial coal mine auctions earlier this month. A total of 19 coal mines spread across Madhya Pradesh, Jharkhand, Odish ...
Wednesday, 25 November 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX UP 0.38 PCT - XINHUA
China Taiyuan coal transaction price index stood at 129.21 points Monday, up 0.38 percent week on week.
The index, released by China ...
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- Petron Corporation, Philippines
- Oldendorff Carriers - Singapore
- Aboitiz Power Corporation - Philippines
- GN Power Mariveles Coal Plant, Philippines
- Georgia Ports Authority, United States
- Cement Manufacturers Association - India
- Medco Energi Mining Internasional
- Wilmar Investment Holdings
- Kobexindo Tractors - Indoneisa
- India Bulls Power Limited - India
- Sojitz Corporation - Japan
- Vijayanagar Sugar Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- AsiaOL BioFuels Corp., Philippines
- Coal and Oil Company - UAE
- Sarangani Energy Corporation, Philippines
- Minerals Council of Australia
- PNOC Exploration Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Vizag Seaport Private Limited - India
- Siam City Cement PLC, Thailand
- Toyota Tsusho Corporation, Japan
- IEA Clean Coal Centre - UK
- GVK Power & Infra Limited - India
- Indonesian Coal Mining Association
- Billiton Holdings Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Commonwealth Bank - Australia
- Mjunction Services Limited - India
- Rio Tinto Coal - Australia
- The Treasury - Australian Government
- Sree Jayajothi Cements Limited - India
- GMR Energy Limited - India
- IHS Mccloskey Coal Group - USA
- VISA Power Limited - India
- Makarim & Taira - Indonesia
- Mercator Lines Limited - India
- Binh Thuan Hamico - Vietnam
- TNB Fuel Sdn Bhd - Malaysia
- South Luzon Thermal Energy Corporation
- Posco Energy - South Korea
- Leighton Contractors Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Baramulti Group, Indonesia
- Independent Power Producers Association of India
- Bhoruka Overseas - Indonesia
- Banpu Public Company Limited - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Authority, New Zealand
- Agrawal Coal Company - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Power Finance Corporation Ltd., India
- Coalindo Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Formosa Plastics Group - Taiwan
- Jorong Barutama Greston.PT - Indonesia
- Standard Chartered Bank - UAE
- Attock Cement Pakistan Limited
- Gujarat Mineral Development Corp Ltd - India
- Grasim Industreis Ltd - India
- Electricity Generating Authority of Thailand
- Uttam Galva Steels Limited - India
- Semirara Mining Corp, Philippines
- Planning Commission, India
- Straits Asia Resources Limited - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- OPG Power Generation Pvt Ltd - India
- Riau Bara Harum - Indonesia
- London Commodity Brokers - England
- PTC India Limited - India
- Salva Resources Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- PowerSource Philippines DevCo
- Manunggal Multi Energi - Indonesia
- Ministry of Finance - Indonesia
- Pendopo Energi Batubara - Indonesia
- Meenaskhi Energy Private Limited - India
- Heidelberg Cement - Germany
- CIMB Investment Bank - Malaysia
- Maheswari Brothers Coal Limited - India
- SMC Global Power, Philippines
- Kepco SPC Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Mintek Dendrill Indonesia
- Aditya Birla Group - India
- Samtan Co., Ltd - South Korea
- Siam City Cement - Thailand
- Kideco Jaya Agung - Indonesia
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- Iligan Light & Power Inc, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Bharathi Cement Corporation - India
- Cigading International Bulk Terminal - Indonesia
- Eastern Coal Council - USA
- Bukit Baiduri Energy - Indonesia
- Borneo Indobara - Indonesia
- Indogreen Group - Indonesia
- Latin American Coal - Colombia
- Central Electricity Authority - India
- Pipit Mutiara Jaya. PT, Indonesia
- Romanian Commodities Exchange
- Parry Sugars Refinery, India
- Bukit Makmur.PT - Indonesia
- Thai Mozambique Logistica
- Ind-Barath Power Infra Limited - India
- Ministry of Transport, Egypt
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- McConnell Dowell - Australia
- Wood Mackenzie - Singapore
- Chamber of Mines of South Africa
- PetroVietnam Power Coal Import and Supply Company
- Africa Commodities Group - South Africa
- Price Waterhouse Coopers - Russia
- Altura Mining Limited, Indonesia
- Bhatia International Limited - India
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Trasteel International SA, Italy
- Singapore Mercantile Exchange
- Semirara Mining and Power Corporation, Philippines
- The University of Queensland
- Bangladesh Power Developement Board
- Meralco Power Generation, Philippines
- White Energy Company Limited
- LBH Netherlands Bv - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- Directorate Of Revenue Intelligence - India
- Metalloyd Limited - United Kingdom
- Interocean Group of Companies - India
- Jindal Steel & Power Ltd - India
- Videocon Industries ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Malabar Cements Ltd - India
- Carbofer General Trading SA - India
- Xindia Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bulk Trading Sa - Switzerland
- Sical Logistics Limited - India
- Eastern Energy - Thailand
- SMG Consultants - Indonesia
- Energy Development Corp, Philippines
- Savvy Resources Ltd - HongKong
- Edison Trading Spa - Italy
- Sinarmas Energy and Mining - Indonesia
- Gujarat Sidhee Cement - India
- Merrill Lynch Commodities Europe
- Bhushan Steel Limited - India
- MS Steel International - UAE
- SN Aboitiz Power Inc, Philippines
- Sakthi Sugars Limited - India
- Antam Resourcindo - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Indika Energy - Indonesia
- Australian Commodity Traders Exchange
- Simpson Spence & Young - Indonesia
- Kumho Petrochemical, South Korea
- Dalmia Cement Bharat India
- European Bulk Services B.V. - Netherlands
- Parliament of New Zealand
- Gujarat Electricity Regulatory Commission - India
- International Coal Ventures Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Bayan Resources Tbk. - Indonesia
- Indian Oil Corporation Limited
- Sindya Power Generating Company Private Ltd
- Kapuas Tunggal Persada - Indonesia
- Essar Steel Hazira Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Intertek Mineral Services - Indonesia
- Port Waratah Coal Services - Australia
- Anglo American - United Kingdom
- The State Trading Corporation of India Ltd
- Goldman Sachs - Singapore
- San Jose City I Power Corp, Philippines
- New Zealand Coal & Carbon
- Australian Coal Association
- Orica Mining Services - Indonesia
- Kaltim Prima Coal - Indonesia
- Ambuja Cements Ltd - India
- Mercuria Energy - Indonesia
- Ministry of Mines - Canada
- ASAPP Information Group - India
- Central Java Power - Indonesia
- Larsen & Toubro Limited - India
- Tamil Nadu electricity Board
- Coastal Gujarat Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Tata Chemicals Ltd - India
- Barasentosa Lestari - Indonesia
- ICICI Bank Limited - India
- Marubeni Corporation - India
- Economic Council, Georgia
- Vedanta Resources Plc - India
- Energy Link Ltd, New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Madhucon Powers Ltd - India
- Orica Australia Pty. Ltd.
- Deloitte Consulting - India
- Renaissance Capital - South Africa
- Jaiprakash Power Ventures ltd
- Lanco Infratech Ltd - India
- Thiess Contractors Indonesia
- Therma Luzon, Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Kartika Selabumi Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Global Coal Blending Company Limited - Australia
- Globalindo Alam Lestari - Indonesia
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